China's national congress is getting underway — here's what you need to know

Chinese paramilitary police officers march at the end of the 18th National Congress of the Communist Party of China in 2012. Feng Li/Getty Images Drones have been banned, clubs closed, and pollution has been cut to deliver perfectly blue skies in time for China's 19th National Congress of the Communist Party in Beijing this week.

Beginning on October 18, the congress will deliver a clear picture of President Xi Jinping's economic policies and political intentions for his second five-year term.

Onlookers will be watching closely for signs Xi is gravitating towards a period of continuity or dramatic change.

As the week-long event — hotly-anticipated by analysts, strategists, and financial markets — unfolds, this is what you need to know.

What is it?

China doesn't have democratic elections, so the purpose of the National Congress is to select the party's leadership and announce the vision and policies guiding the next five-year political term. The months leading up to the congress are intense as all policies and most leadership positions (including some at local government level and state-run companies) are decided on, and negotiated, by party veterans.

This year nearly 2,300 party delegates will attend the congress in Beijing. Delegates represent the country's 31 provincial regions, China's armed forces and police, the central financial system and certain state-run institutions.

It is the role of delegates to elect the the party's 205-member Central Committee. From this pool, 25 members are chosen for the Politburo and a further seven members are chosen for the Politburo Standing Committee. This smallest group is the party's most powerful and meets each week to discuss national issues. The larger Central Committee meets just once a year to review major shifts in policy.

The event begins with a "work report" speech by Xi and ends about a week later when all new members are confirmed.

President Xi Jinping arrives for the opening session of the National People's Congress in Beijing, China, March 5, 2016. Reuters/Jason Lee

Why does it matter?

China is the world's second largest economy and home to the second largest stock market.

This means the economic plans Xi unveils can have global ramifications. The introduction of a policy item on the environment at the 18th National Congress in 2012 was a key driver behind China's growth in the renewable energy industry over the last five years.

The meeting also provides a key insight into Xi's future leadership plans which is crucial for countries and companies to understand the country's political landscape.

What's different this year?

An unusually large number of positions are open because party members have reached the unofficial retirement age of 68. Six out of 25 Politburo members and, most significantly, five of the seven Politburo Standing Committee members are expected to vacate their seats.

Politics to watch

Xi is already considered one of the most powerful leaders in generations.

"The five most powerful people are the head of the party, the president, the commander in chief, the author of the book that gets the best display spots in the bookstores these days, and the guy the People's Daily hails as China's most astute commentator on globalization — in other words Xi, Xi, Xi, Xi, and Xi," Jeff Wasserstrom, an expert in modern Chinese history at the University of California, recently told CNN.

President Xi Jinping after a joint news statement with Serbian President Tomislav Nikolic in Belgrade, Serbia, June 18, 2016. REUTERS/Marko Djurica

But for the most part, there are two key issues getting attention:

1. Xi's potential third term

China's constitution allows President to only serve two five-year terms (though the Party Secretary General, a position Xi also holds, has essentially no constraints). Yet some in the party may support Xi staying on for a third term.

Signs Xi wants a third term include:

None of Xi's protégés are chosen among the new Politburo Standing Committee. The future leader is nearly always selected from this small group. A key indicator will be what happens to Xi's main protégé Chen Miner. However, Chen would have to climb two rungs to make it onto the Standing Committee, a move that would ignore rules around seniority.

The dismissal of the unofficial retirement rule. If Xi allows members 68 and older to stay on, it may be because he wants to stay on once he is 68 at the 20th National Congress in 2022. Last year, one official went so far as to call the rule "folklore". All eyes are on what happens to Xi's close ally, and Standing Committee member, 69-year-old Wang Qishan.

However, as much as Xi may want to serve a third term, he may be highly swayed by the knowledge that not handing over power after 10 years could open the door to dictatorship-style rule in the future, threatening the long-term stability of the party and China's communist regime at large.

China's President Xi Jinping attends a welcoming ceremony for Madagascar's President Hery Rajaonarimampianina outside the Great Hall of the People in Beijing, China, March 27, 2017. REUTERS/Jason Lee

2. Xi's political support

Experts believe Xi will try to strengthen his hold on power by promoting his allies into the Politburo and Politburo Standing Committee. His ability to do so will not only indicate how much support he has in the broader party but will drastically increase the power he has to enact his desired policies over the next five years.

Specific titles used to refer to Xi. State news outlets recently started using the term "lingxi" which had not been used since the Mao era.

Xi's theories being enshrined, with his name, into the constitution. Many leaders have added their communist theories but only two have had their names included. According to Beijing-based research firm Trivium, this "would officially confirm what many China watchers have argued for years. Namely, that Xi has a level of power unprecedented since Mao, and that there is consensus among the Party elite that a powerful leader is needed. It would represent a strong endorsement of Xi's first term, and would signal a mandate to continue his program of tighter Party control. Should he fail, it would imply that he still faces resistance among segments of the Party elite."

A new growth rate. One of China's goals was to double GDP between 2010 and 2020. To still achieve this, a growth rate of 6.5% a year is required.

De-risking and deleveraging. While deregulation helped the stock market become the second largest in the world, it also increased risk. It's highly likely China will begin strengthening regulations to contain risk. Xi has also previously said that "the most pressing issue" is lowering the debt ratios of state-owned enterprises.

Reforming the household registration system called "hukou". This policy limits workers from moving freely between urban and rural areas, much like a passport. Productivity and growth could significantly increase by reforming this system.

Private industry, and the economy, would also benefit from lower taxes and stronger intellectual property rights.

Other issues likely on the agenda are the eradication of poverty (China has 40 million people living in poverty and the country had pledged to alleviate poverty by 2020) and the continued focus on greener growth by way of more environmental regulations and increased investment in green processes.

What's happened before

While most of the policy and political decisions have been made long before Xi steps on stage, the delegates do hold a rare piece of power as their role is to cull a shortlist of Central Committee candidates by voting to eliminate those they dislike.

In 1987, Deng Liqun, a former party propaganda chief who had fought against the country's liberals and intellectuals, had been pre-selected for a position on the Politburo. However, the delegates eliminated him from a position on the Central Committee thus preventing him from a more senior position of power.